ITEM 1A. RISK FACTORS
An investment in our securities involves a
high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this
Annual Report, before making an investment decision. Our business, financial condition, results of operations, and future prospects could
be materially and adversely affected by any of the following risks. The trading price of our common stock could decline due to any of
these risks, and you may lose all or part of your investment. The risks described below are not the only risks facing our company. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect
our business operations.
Risks Relating to Our Business and Operations
We have a limited operating history in our
current business segments, which makes it difficult to evaluate our business and future prospects.
We have a limited operating history in our current
businesses. We were initially pursuing a biotech platform and, through our acquisition of RPM in December 2025, have pivoted to primarily
operating as an AI company. Because of this limited history, it is difficult to evaluate our proposed business and future prospects, including
our ability to plan for and model future growth, and there is no guarantee that our AI platform or Keto Air businesses will result in
profit or growth. Investors should consider the risks, expenses, and difficulties frequently encountered by companies in the early stage
of development. There can be no assurance that we will successfully address any of these risks.
We have a history of net losses and an
accumulated deficit, which raises substantial doubt about our ability to continue as a going concern.
Our results of operations have not resulted in
profitability. We incurred net losses from continuing operations of approximately $17.5 million and $7.0 million for the years ended
December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of approximately $105.9 million. There
is no assurance that we will be successful in executing our business plan or that we will be able to curtail our losses. There is substantial
doubt about our ability to continue as a going concern. Our independent registered public accounting firm has included an explanatory
paragraph in its audit report expressing substantial doubt about our ability to continue as a going concern. Our ability to continue
as a going concern depends on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce
expenditures, and ultimately generate revenue.
We have not generated sustainable revenue since
inception, and we may not be able to generate sufficient revenue to achieve or maintain profitability.
We have not yet developed a meaningful customer
base and have not generated sustainable revenue since inception. We are subject to the substantial risk of failure facing businesses seeking
to develop and commercialize new products and technologies, and maintaining and improving our platform will require significant capital.
Our Keto Air product has generated minimal revenue to date, and we anticipate that it will take approximately one year from the date of
this Annual Report for us to begin generating meaningful revenue from our RPM platform. There can be no assurance that we will generate
revenue at the levels we anticipate, or at all, and our failure to do so could have a material adverse effect on our business, financial
condition, and results of operations.
We may not be successful in commercializing
our AI platform or our Keto Air product, either of which would materially harm our business.
We may not be successful in our AI vodcasting
and podcasting platform businesses or our sales of Keto Air. Market acceptance of AI-driven offerings is uncertain, and we will rely on
other companies, developers, and partners to build our product offerings. Additionally, evolving laws and regulations in areas such as
privacy, intellectual property, safety, competition, content regulation, and consumer protection may delay or impede the development of
our products and services. Our Keto Air product is currently operating as an early-stage commercial activity, and we are continuing to
evaluate the future strategic direction of the Keto Air product line as we assess its commercial performance. There can be no assurance
that either of our current business segments will achieve market acceptance or commercial viability.
Our RPM platform is in an early stage of
development and is based on new and evolving AI technologies, which are subject to significant uncertainty.
Our Catch-Up Vodcast and Podcast Platform is
currently under development and is based on new and evolving AI systems and technologies. This exposes us to risks including failure
to gain market acceptance, inability to secure sufficient intellectual property rights, proprietary rights of third parties limiting
our marketing efforts, failure to obtain sufficient user exposure, superior competing products, and the unpredictability of AI
technology. Our platform is currently in beta testing with a limited number of users, and Phase 2 of the platform — which will
expand our addressable market beyond podcasters — is currently in development and expected to launch in Q3 of 2026. There can be no assurance that Phase 2 will be completed on schedule or that it will achieve the
commercial results we anticipate.
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We face intense competition in both of our
business segments, and many of our competitors have substantially greater resources than we do.
We face intense competition from numerous technology
companies seeking to enter the generative AI-powered vodcasting and podcasting businesses. Many of our current and potential competitors
have significantly larger market presence, greater name recognition, access to more potential customers, and substantially greater financial,
technical, sales, marketing, management, support, and other resources than we do. In our consumer health technology segment, we compete
with manufacturers and distributors of urine-based ketone test strips and other breath-based ketone monitoring devices, many of which
have established retail distribution networks and marketing infrastructure that we currently lack. Our failure to compete effectively
in either segment could have a material adverse effect on our business, financial condition, and results of operations.
Our business is subject to rapid technological
change, and if we fail to adapt, our business may be negatively impacted.
Our industry is subject to rapid technological
change, and if we do not adapt to and appropriately allocate resources among emerging technologies and business models, our business may
be negatively impacted. Competitors may adapt to emerging technologies or business models more quickly or effectively than we do. The
generative AI industry in particular is evolving at an exceptionally rapid pace, and technologies, platforms, and distribution channels
that are relevant to our business today may be superseded or disrupted in ways that we cannot currently anticipate.
We may encounter difficulties associated
with early-stage companies that could adversely affect our operations.
We may encounter numerous difficulties frequently
encountered by early-stage companies, including implementing our growth strategy, countering competitors, pursuing new users, maintaining
adequate expense control, attracting and retaining qualified personnel, reacting to user preferences, successfully launching products,
and maintaining regulatory compliance. Failure to address any of these factors could have a material adverse effect on our business, financial
condition, results of operations, and future prospects.
Our success depends on the continued services
of our key personnel, the loss of whom could materially harm our business.
Our success depends on the continuing
services of Wenzhao Lu, our Chairman, Meng Li, Luisa Ingargiola, our Chief Financial Officer, our other executive officers, and
Michael Mathews, the Chief Executive Officer of RPM. The loss of any of these individuals could have a material and adverse effect
on our business operations. The supply of qualified technical, professional, managerial, and other personnel is currently
constrained, and competition for qualified employees is intense. In particular, our former Chief Executive Officer, David Jin, was
instrumental in sourcing our Keto Air distribution rights through his personal industry relationships, and the loss of his services
could adversely affect the continuation and development of that segment.
Our strategy of continuing to evaluate
additional possible acquisitions to supplement our operations involves significant risks, and we may not be able to identify, complete,
or successfully integrate any such acquisitions.
We are actively evaluating complementary possible artificial intelligence
acquisitions that we believe could generate near-term revenue to supplement our current operations. Strategic transactions, including
mergers, acquisitions, joint ventures, and investments, involve risks including the ability to integrate personnel, labor models, financial,
information technology, and other systems successfully; disruption of ongoing business; distraction of management; and the possibility
of material impairments of goodwill or other assets. We may not realize the anticipated benefits from such transactions and may be exposed
to additional liabilities of any acquired business. We have previously pursued and terminated multiple acquisition transactions, including
our proposed merger with YOOV Group Holding Limited, and there can be no assurance that future acquisition efforts will result in completed
transactions or, if completed, that such transactions will deliver the anticipated strategic or financial benefits.
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We depend on third parties for supplies
and services critical to our Keto Air business, and any disruption could adversely affect our operations.
We depend on third parties to provide supplies
and services critical to our Keto Air business and are heavily reliant on third-party ground and air travel for transport of supplies.
Disruptions to supply and services could have a material adverse effect on our Keto Air business. We source the Keto Air device from a
single Hong Kong-based technology group pursuant to an exclusive distribution agreement, and any disruption to that supply relationship
— whether due to manufacturing issues, geopolitical developments, shipping disruptions, or other factors — could impair our
ability to fulfill customer orders and sustain revenue from this segment.
The termination of our proposed merger with
YOOV Group Holding Limited may continue to adversely affect our business, financial condition, and stock price.
The termination of the proposed merger with YOOV
Group Holding Limited may adversely affect our stock price, business, financial condition, and ability to raise capital; result in unrecoverable
costs; harm our reputation and relationships with investors, business partners, customers, vendors, and employees; create strategic uncertainty;
and expose us to potential litigation or regulatory proceedings. The three-year non-disparagement covenant in the Mutual Termination and
Release Agreement may also limit certain communications relating to the proposed merger and its termination.
Risks Relating to Artificial Intelligence and
Technology
The use of AI in our platform may give rise
to legal liability, reputational harm, and regulatory scrutiny.
Our use of AI in our vodcasting and podcasting
platform may give rise to risks related to harmful content, inaccuracies, discrimination, intellectual property infringement or misappropriation,
defamation, data privacy, and cybersecurity. We intend to deploy open-source third-party AI systems that are relatively new to the commercial
market and may at times generate inaccurate or low-quality content, which could lead to reputational harm and legal liability. Unintended
consequences of AI tools may negatively affect human rights, privacy, employment, or other social concerns, resulting in claims, lawsuits,
brand or reputational harm, and increased regulatory scrutiny.
Our RPM platform's AI avatar feature, which
replicates individual voices and likenesses, exposes us to significant legal risks under right of publicity, biometric privacy, and related
laws.
The RPM platform generates AI-produced video content
featuring avatars that replicate the voice and likeness of content creators. This functionality implicates state right of publicity laws
across the United States, which protect individuals against the unauthorized commercial use of their name, image, voice, and likeness.
Laws governing AI-generated synthetic media depicting real individuals vary significantly across states and are rapidly evolving, with
particularly robust statutory frameworks in California, New York, and Texas, among others. Several states have recently enacted or are
actively considering legislation specifically addressing AI-generated synthetic media and voice cloning.
Additionally, the collection and processing of
voice and likeness data through our platform's avatar generation feature may implicate obligations under state biometric data privacy
laws, including the Illinois Biometric Information Privacy Act ("BIPA") and similar statutes in other states, which impose specific
consent, notice, retention, and data security requirements on the collection and use of biometric identifiers, including voiceprints.
Failure to comply with applicable right of publicity or biometric privacy laws could result in significant legal liability, regulatory
enforcement actions, and reputational harm. There can be no assurance that the consent and authorization process we have implemented for
our platform's beta users will be sufficient to satisfy all applicable legal requirements as such laws continue to develop.
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The content generated by our platform may
infringe the intellectual property rights of third parties, which could expose us to significant liability.
Our platform's content sourcing feature automatically
scrapes and curates video content from the internet for inclusion in AI-generated videos. This process may result in the reproduction
or republication of content that is protected by copyright or other intellectual property rights of third parties. While we intend to
implement appropriate content identification and licensing measures, there can be no assurance that all content sourced by our platform
will be free of third-party intellectual property claims. If third parties claim that we infringe their intellectual property, it may
result in costly litigation. We may not be able to adequately protect our proprietary technology, and competitors may be able to offer
similar products and services. Any such claims, regardless of their merit, could result in significant legal costs, distract management,
and adversely affect our business.
We may not be able to protect our intellectual
property rights, which could impair our competitive position.
We may face uncertainty and difficulty in obtaining
and enforcing our patents and other proprietary rights. Patent applications may not result in issued patents, and even if issued, they
may not provide meaningful protection. The Leahy-Smith America Invents Act introduced procedures that may make it easier for third parties
to challenge issued patents. Filing, prosecuting, and defending patents in all countries would be prohibitively expensive, and intellectual
property rights in some countries outside the United States may be less extensive. We have filed three provisional patent applications
in connection with our RPM platform, and there can be no assurance that any patents will issue from these applications, or that any issued
patents will provide meaningful competitive protection. Additionally, certain patents in our cellular therapy portfolio are co-owned with
MIT and Arbelli, and our ability to license or enforce such patents unilaterally may be limited by the terms of our co-ownership arrangements.
Laws and regulations governing artificial
intelligence are rapidly evolving, and compliance may be costly and uncertain.
Laws and regulations affecting AI are continually
evolving. Compliance with new laws can be costly and time-consuming, and we could be subject to regulatory enforcement actions or litigation
if we fail to comply. There is substantial uncertainty about the nature, direction, severity, and granularity of future AI regulation.
Government bodies have implemented laws and are considering further regulating AI and machine learning, which could negatively impact
our ability to use these technologies. New and changed rules regarding privacy, data protection, and cross-border transfers of customer
information could cause us to delay planned uses and disclosures of data. The European Union's Artificial Intelligence Act, which entered
into force in 2024, may impose specific obligations on AI systems that generate synthetic media depicting real individuals. To the extent
our platform is accessed by users in the European Union, we may become subject to these obligations, compliance with which could require
significant operational and legal resources.
Our platform's content may be restricted
or removed by major social media and content distribution platforms, which could significantly impair the utility and commercial appeal
of our product.
The RPM platform is designed to generate content
for distribution across major social media and content platforms, including YouTube, TikTok, Instagram, and others. Each of these platforms
maintains content policies governing the disclosure and permissibility of AI-generated content, synthetic media, and avatar-based representations
of real individuals. These policies are subject to frequent revision and vary across platforms. Failure to comply with applicable platform
content policies could result in the removal of content generated through our platform, the suspension or termination of creator accounts
on those platforms, or other restrictions that could adversely affect the utility and commercial appeal of our platform to content creators,
and in turn our ability to generate revenue.
Our business depends on the reliable performance
of third-party cloud and infrastructure providers, and any disruption to these services could adversely affect our operations.
We intend to rely on third-party providers for
computing infrastructure, secure network connectivity, and other technology-related services. Any disruption in services provided by such
third-party providers could adversely affect our business. These providers may take actions beyond our control, including discontinuing
or limiting access to their cloud platform, increasing pricing terms, terminating contractual relationships, or establishing more favorable
relationships with our competitors.
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Cybersecurity breaches or incidents could
damage our reputation and adversely affect our business.
Security breaches and attacks against our systems
and network could damage our reputation and negatively impact our business. As a small company with limited resources, our cybersecurity
measures may not detect or prevent all attempts to compromise our systems, including distributed denial-of-service attacks, viruses, malicious
software, phishing attacks, and social engineering. Breaches could result in unauthorized access, misappropriation of information, deletion
or modification of user or consumer information, or denial-of-service interruptions. Our current data footprint is limited — consisting
primarily of email communications, consumer purchase data collected through Keto Air sales, and content creator data gathered through
our limited RPM beta program — but will expand significantly as our platform scales commercially. Any material cybersecurity incident
could adversely affect our reputation, expose us to regulatory enforcement, and result in significant costs.
We are subject to data privacy and security
laws that impose significant compliance obligations, and any failure to comply could result in material liability.
We are subject to laws and regulations concerning
privacy, information security, data protection, consumer protection, and protection of minors, including the California Consumer Privacy
Act, as amended by the California Privacy Rights Act, and similar state laws. Compliance has required significant operational resources
and expenses. Any failure or perceived failure to comply with privacy-related obligations may result in governmental enforcement actions,
investigations, litigation, or public statements against us, and could cause users to lose trust in our products and services. The collection
and processing of voice and likeness data through our RPM platform's avatar generation feature may also implicate obligations under applicable
biometric data privacy laws, including the Illinois Biometric Information Privacy Act and similar state statutes, and we are continuing
to evaluate our compliance obligations in this area.
Risks Relating to Our Capital Structure and
Nasdaq Listing
We will need to raise additional capital
to fund our operations and growth, and we may not be able to do so on acceptable terms, or at all.
We are currently operating at a loss and expect
our operating costs to increase significantly. As of December 31, 2025, we had cash from continuing operations of approximately $0.1 million.
We will need to raise additional capital or generate substantial revenue to support our development and commercialization efforts. We
have no arrangements or credit facilities currently in place as a source of funds, and there can be no assurance that we will be able
to raise sufficient additional capital on acceptable terms, or at all. If we are unable to raise additional capital as needed, we may
be required to curtail or cease our operations, delay or reduce the scope of our development activities, or relinquish rights to certain
of our assets or technologies.
We have outstanding indebtedness that could
adversely affect our financial condition and liquidity.
As of December 31, 2025, we had approximately
$1.1 million of outstanding indebtedness (excluding $5.8 million of outstanding indebtedness from discontinued operations). If we are
unable to generate sufficient cash to repay our debt obligations when they become due, we may not be able to obtain additional debt or
equity financing on favorable terms. If we breach any undertakings or default on any obligations under our agreements with lenders, our
outstanding indebtedness could become immediately due and payable.
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Future sales and issuances of our securities
could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations,
including research and development, increased marketing, hiring new personnel, commercializing our products, and continuing activities
as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience
substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices
and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than
one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing
stockholders, and new investors could gain rights superior to our existing stockholders.
Future issuances of our securities, including
upon conversion of our outstanding preferred stock, will dilute the ownership interests of our existing stockholders and may depress the
trading price of our common stock.
Stockholders may experience dilution of their
ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are
convertible into or exercisable for common or preferred stock. As of the date of filing, we have issued 3,800 shares of Series C Preferred
Stock, 5,000 shares of Series D Preferred Stock, and 19,500 shares of Series E Preferred Stock. The future issuance of any such additional
shares may create downward pressure on the trading price of our common stock. As of December 31, 2025, we had: 41,169 shares issuable
upon exercise of outstanding stock options; 95,746 shares issuable upon exercise of outstanding stock warrants; 1,576,763 shares issuable
upon conversion of outstanding Series C Preferred Stock; 2,074,689 shares issuable upon conversion of outstanding Series D Preferred Stock;
13,000,000 shares issuable upon conversion of outstanding Series E Preferred Stock; and 788,283 shares issuable upon conversion of outstanding
convertible notes and related accrued interest. If these shares are sold or perceived to be sold in the public market, the price of our
common stock could decline.
Our Series E Non-Voting Convertible Preferred
Stock is subject to an Exchange Cap and requires stockholder approval under Nasdaq Listing Rule 5635 prior to conversion, and there can
be no assurance that we will obtain such approval.
Our Series E Preferred Stock is convertible into
shares of our common stock at a conversion price of $1.50 per share, subject to: (i) a beneficial ownership cap of 4.99% applicable to
each holder; (ii) an Exchange Cap that prevents the issuance of shares of common stock upon conversion in excess of the number of shares
we may issue without breaching our obligations under applicable Nasdaq listing rules and regulations; and (iii) the receipt of stockholder
approval in accordance with Nasdaq Listing Rule 5635. We intend to seek this stockholder approval at our annual meeting of stockholders
currently scheduled to be held on or before May 12, 2026. There can be no assurance that our stockholders will approve the conversion
of the Series E Preferred Stock. If such approval is not obtained, the Series E Preferred Stock will remain unconverted, which could adversely
affect our ability to raise additional capital, may require us to redeem the Series E Preferred Stock, and could have a material adverse
effect on our business and financial condition.
We must maintain compliance with Nasdaq
continued listing standards, and there can be no assurance that we will be able to do so.
We are required to comply with certain Nasdaq
rules including those regarding minimum stockholders' equity, minimum share price, and certain corporate governance requirements. If we
fail to comply with these rules and are delisted, we could face significant consequences including limited availability of market quotations,
reduced liquidity, a determination that our common stock is a "penny stock," limited news and analyst coverage, and a decreased
ability to issue additional securities or obtain additional financing. We previously received a deficiency notice from Nasdaq relating
to our minimum stockholders' equity, and while we believe the completion of the RPM acquisition has resolved that deficiency, there can
be no assurance that Nasdaq will confirm such resolution or that we will not face future listing deficiencies. If we are unable to maintain
listing of our securities on The Nasdaq Capital Market or another reputable stock exchange, it may be more difficult for stockholders
to sell their securities, and a delisting is likely to reduce the liquidity of our common stock and may inhibit or preclude our ability
to raise additional financing.
Significant related party transactions,
including the sale of our Route 9 property to a director, create conflicts of interest and could adversely affect stockholder confidence
in our corporate governance.
On February 18, 2026, we completed the sale of
100% of the membership interests of Avalon RT 9 Properties, LLC to Wenzhao Lu, the Chairman of our Board of Directors, for a total aggregate
purchase price of approximately $9,000,000. This transaction, as well as other related party transactions in our history — including
the exchange of Series A Preferred Stock for Series D Preferred Stock by our Chairman — involve members of our board of directors
or their affiliates. Although all such transactions have been reviewed and approved by our Board of Directors, with the participation
of disinterested directors, and in accordance with our related party transaction policy, related party transactions present inherent conflicts
of interest and could adversely affect stockholder confidence in our corporate governance practices and the integrity of our financial
disclosures.
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Our officers, directors, and significant
stockholders collectively hold a significant percentage of our outstanding common stock, which may limit the ability of other stockholders
to influence corporate decisions.
Our officers, directors, and 5% stockholders and
their affiliates beneficially own a significant percentage of our outstanding common stock. As a result, these stockholders have significant
influence and may be able to determine all matters requiring stockholder approval, including elections of directors, amendments of our
organizational documents, or approval of any merger, sale of assets, or other major corporate transactions. This concentration of ownership
may make it difficult for other stockholders to influence significant corporate decisions, may discourage potential acquirors from pursuing
a business combination with us, and may have a depressive effect on the trading price of our common stock.
Provisions in our charter documents and
Delaware law may have anti-takeover effects that could prevent a change of control that stockholders may consider favorable.
Our Board of Directors is authorized to issue
up to 10,000,000 shares of preferred stock with powers, rights, and preferences designated by it, which could be used to create voting
impediments or frustrate persons seeking to effect a takeover. Delaware law also prohibits corporations from engaging in a business combination
with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless the Board of Directors
approves the transaction. These provisions, together with our outstanding preferred stock, could have the effect of delaying, deferring,
or preventing a change of control that stockholders might otherwise consider to be in their best interests.
Our common stock price has been and may
continue to be highly volatile, and stockholders could suffer substantial losses.
The price of our common stock has been, and is
expected to continue to be, volatile. The stock market in general, and the market for smaller technology and healthcare companies in particular,
has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. Factors that may
cause volatility in our stock price include, among others, our quarterly financial results, announcements regarding our platform development,
changes in analyst estimates, developments in the AI industry, and broader market conditions. Stockholders may not be able to sell their
shares at or above the price at which they purchased them.
Risks Relating to General Economic and Market
Conditions
Adverse economic conditions could reduce
demand for our products and services and harm our business.
Our business is susceptible to market conditions
and risks associated with the digital entertainment and consumer health industries. Economic conditions that negatively impact discretionary
consumer spending, including inflation, slower growth, unemployment levels, tax rates, interest rates, energy prices, declining consumer
confidence, recession, and other macroeconomic conditions, including those resulting from geopolitical issues and uncertainty, could have
a material adverse impact on our business and results of operations. Demand for consumer health products such as Keto Air, and for subscription-based
content creation tools such as our RPM platform, may be disproportionately affected by economic downturns that reduce consumer and business
discretionary spending.
Geopolitical developments and trade restrictions,
including those affecting our supply chain for the Keto Air device, could adversely affect our operations.
We source the Keto Air breathalyzer device from
a Hong Kong-based technology group and rely on international shipping and logistics for delivery of inventory to North America. Geopolitical
tensions, trade restrictions, tariffs, export controls, or other regulatory developments affecting U.S.-China or U.S.-Hong Kong trade
could disrupt our supply chain, increase our costs, or prevent us from sourcing sufficient inventory to meet customer demand. Any such
disruption could have a material adverse effect on our consumer health technology segment.
Changes in government spending priorities
and regulatory policy could affect our business in ways we cannot predict.
Our ability to obtain reimbursement or funding
from federal programs may be impacted by possible reductions in federal spending. The U.S. federal budget remains subject to significant
uncertainty, and government cost reduction initiatives may impact the ability of relevant agencies such as the FDA to continue to function
at current levels. Additionally, changes in federal regulatory priorities with respect to artificial intelligence, data privacy, or consumer
protection could result in new or more stringent requirements being imposed on our business, which could require significant compliance
resources and adversely affect our operations.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Cybersecurity Risk Management
We, like other companies in our industry, face
several cybersecurity risks in connection with our business. Our business strategy, results of operations, and financial condition have
not, to date, been affected by risks from cybersecurity threats. During the reporting period, we have not experienced any material cyber
incidents, nor have we experienced a series of immaterial incidents, which would require disclosure.
In the ordinary course of our business, we use,
store and process a bare minimum of data. To effectively prevent, detect, and respond to cybersecurity threats, we contract with a third
party IT consultant, Night Fox Computing, to assist us to maintain secure email systems.
Governance
Under the ultimate direction of our CFO, with
oversight from the Board, we maintain a security governance structure to evaluate and address cyber risk.
Our Board is responsible for the oversight of
cybersecurity risk management. The Board delegates oversight of the cybersecurity risk management program to the Audit Committee. On a
quarterly and as-needed basis, the CFO reports to the Audit Committee on our cybersecurity risk management program, including any critical
cybersecurity risks, ongoing cybersecurity initiatives and strategies, and applicable regulatory requirements and industry standards.
The CFO also provides updates to the Audit Committee of any cybersecurity incidents (suspected or actual) and provides updates on the
incidents as well as cybersecurity risk mitigation activities as appropriate.
ITEM 2. PROPERTIES
Our principal executive offices are located at
4400 Route 9 South, Freehold, New Jersey 07728, where we have maintained our offices since our founding in 2014. We currently lease this
office space pursuant to a lease agreement, as described further below.
Sale of Route 9 Property
The building located at 4400 Route 9 South was
previously owned by our wholly owned subsidiary, Avalon RT 9 Properties, LLC. On February 18, 2026, we completed the sale of 100% of the
membership interests of Avalon RT 9 Properties, LLC to Wenzhao Lu, a director of our company, for a total aggregate purchase price of approximately
$9,000,000. The sale price was determined based on an independent appraisal of the property conducted by CBRE, which valued the building
at $8.7 million, and was reviewed and approved by the disinterested members of our Board of Directors in accordance with our related party
transaction policy. The transaction is described further in Item 13 — Certain Relationships and Related Transactions of this Annual
Report. Following the completion of the sale, we continue to lease our principal executive offices at 4400 Route 9 South from the new
owner pursuant to a lease agreement.
Other Office Space
We lease additional office space to support our
operations. The location of our office facilities is not critical to our operations, and we anticipate no difficulty in extending our
existing leases or obtaining comparable office space on commercially reasonable terms as needed.
Lease Obligations
We are obligated under various lease agreements
providing for office space that expire at various dates through December 31, 2027. Total rent expense under these lease agreements was
approximately $97,000 and $127,000 for the fiscal years ended December 31, 2025 and 2024, respectively.
Adequacy of Facilities
We believe that our existing facilities are suitable
and adequate to meet our current operational needs. We intend to add new facilities or expand our existing facilities as we add employees
and as our business grows, and we believe that suitable additional or substitute space will be available on commercially reasonable terms
to accommodate any such expansion.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in various
lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an
adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such
legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition
or operating results.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on The Nasdaq Capital
Market under the symbol “ALBT.” On March 16, 2026, the closing price of our common stock on The Nasdaq Capital Market was
$0.6687.
Holders of Record
As of March 17, 2026, there were approximately
240 registered holders of record of our shares of common stock, based upon information received from our stock transfer agent. However,
this number does not include beneficial owners whose shares were held of record by nominees or broker dealers.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2025 and 2024
should be read in conjunction with our consolidated financial statements and related notes to those consolidated financial statements
that are included elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking
statements that involve risks and uncertainties.
Special Note Regarding
Forward-looking Statements
All statements other
than statements of historical fact included in this Annual Report Form 10-K including, without limitation, statements under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and
the plans and objectives of management for future operations, are forward-looking statements. When used in this Annual Report on Form
10-K, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend”
and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual
results could differ materially from those contemplated by the forward-looking statements as a result of a number of factors, including
those set forth under the risk factors and business sections in this Annual Report on Form 10-K.
Overview
We are a technology-focused company developing
and acquiring innovative artificial intelligence platforms. Through our AI-driven subsidiary, we are advancing next-generation AI systems,
including automated video generation, enterprise documentation, and workflow automation solutions. We are also expanding our intellectual
property portfolio in cellular therapy and generative AI publishing and software. In addition, we are marketing the KetoAirTM breathalyzer
device, which is registered with the U.S. Food and Drug Administration as a Class I medical device, and plan to pursue additional diagnostic
applications for the technology. In addition, we owned and operated commercial real estate at our headquarters in Freehold, NJ through
February 2026.
We had the following
areas of focus in 2025 and 2024:
Research and Development
We are focused on bringing forward the existing
patent applications previously filed with the Massachusetts Institute of Technology (“MIT”). We completed a sponsored research
and co-development project with MIT led by Professor Shuguang Zhang as Principal Investigator. Using the unique QTY code protein design
platform, six water-soluble variant cytokine receptors have been successfully designed and tested in a laboratory to show binding affinity
to the respective cytokines. We currently are focused on bringing forward the existing patent applications previously filed as part of
this program. We also continue to bring forward the existing patent application previously filed with Arbele related to CAR-T cellular
therapy technologies.
16
Product Commercialization
We have begun the commercialization and development
of a versatile breathalyzer system.
We were granted distributorship rights for the
KetoAir from Qi Diagnostics for the following territories: North America, South America, the EU and the UK. For our commercialization
strategy, we intend to target the diabetes and obesity markets. We sell the product through the KetoAir website and social media. We believe
the KetoAir device has some competitive advantages to other methods for measuring ketosis.
The KetoAir is a handheld device that allows the
user to detect acetone levels in exhaled breath. The acetone level is in concentration units (ppm, part-per-million) such that the user
will know his/her real-time ketosis status: inadequate ketosis (0-3.99 ppm), mild ketosis (4-9.99 ppm), optimal ketosis (10-40 ppm), or
alarming level (> 40 ppm). The KetoAir is registered with the United States Food and Drug Administration as a Class I medical device.
The device is also paired with an “AI Nutritionist” software program (via Bluetooth connection) which is downloadable from
Google Play (for Android mobile phones, approved) and iPhone (the app is currently being reviewed by Apple iOS AppStore). It helps users
monitor and manage their ketogenic diet and related programs. We believe the KetoAir can be an essential tool to help diabetic patients
adhere to their therapeutic programs and optimize their ketogenic dietary management.
Cessation of Laboratory Services
During the first quarter of 2025, to preserve
cash, the Company entered into discussions with Lab Services MSO for the potential redemption of our investment and on February 26, 2025,
we and Lab Services MSO entered into a Redemption and Abandonment Agreement, whereby Lab Services MSO redeemed the 40% equity interest
in Lab Services MSO held by us. Accordingly, beginning in February 2025, we no longer offer laboratory services.
Acquisition of an AI Generated Publishing Company
On December 12, 2025, we acquired RPM Interactive,
Inc., a Nevada corporation (“RPM”). As a result of the acquisition, effective December
12, 2025, we are advancing next-generation AI systems, including automated video generation, enterprise documentation, and workflow automation
solutions.
Other Areas
In order to preserve cash and focus on product
commercialization, we have suspended all research and development efforts related to cellular therapy. We are redirecting our funding
efforts to our core business strategies outlined above.
Going Concern
Our consolidated financial statements have been
prepared assuming that we will continue as a going concern, which contemplates, among other things, the realization of assets and the
satisfaction of liabilities in the normal course of business.
As reflected in the accompanying consolidated
financial statements, we had working capital deficit of approximately $12,651,000 at December 31, 2025 and had incurred recurring net
losses from continuing operations and generated negative cash flow from operating activities of continuing operations of approximately
$17,519,000 and $4,581,000 for the year ended December 31, 2025, respectively.
We have a limited operating history and our continued
growth is dependent upon the continuation of generating revenue for selling of Keto Air, generating revenue from advanced Agentic AI systems,
including automated video generation and workflow automation, and obtaining additional financing to fund future obligations and pay liabilities
arising from ordinary course business operations. In addition, the current cash balance cannot be projected to cover our operating expenses
for the next twelve months from the release date of this Annual Report on Form 10-K. These matters raise substantial doubt about our ability
to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital, implement
our business plan, and generate sufficient revenues. There are no assurances that we will be successful in our efforts to generate sufficient
revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. We plan on raising capital
through the sale of equity to implement our business plan. However, there is no assurance these plans will be realized and that any additional
financings will be available to us on satisfactory terms and conditions, or at all.
The accompanying consolidated financial statements
do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification
of liabilities that may result should we be unable to continue as a going concern.
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Critical
Accounting Policies
Use
of Estimates
The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Changes in these estimates and assumptions may have a material impact on the consolidated financial statements and accompanying notes.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in
formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could
differ significantly from those estimates.
Significant estimates during the years ended December
31, 2025 and 2024 include the useful life of intangible assets, the assumptions used in assessing impairment of long-term assets, the
allowance for credit loss, the valuation of deferred tax assets and the associated valuation allowances, the valuation of stock-based
compensation, the valuation of Series D convertible preferred stock (“Series D Preferred Stock”), the fair value of the consideration
given in the purchase of RPM, the fair value of assets acquired and liabilities assumed in acquisition, and the assumptions used to determine
fair value of warrants and embedded conversion features of convertible note payable.
Income Taxes
We are governed by the income tax laws of China
and the United States. Income taxes are accounted for pursuant to ASC 740 “Accounting for Income Taxes,” which is an asset
and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in our financial statements or tax returns. The charge for taxes is based on the results for the period
as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is accounted for using the balance
sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax
liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable
that taxable profit will be available against which deductible temporary differences can be utilized.
Deferred tax is calculated using tax rates that
are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the
income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is changed
to equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and
we intend to settle its current tax assets and liabilities on a net basis.
Recent Accounting Standards
For details of applicable new accounting standards,
please, refer to Recent Accounting Standards in Note 3 of our consolidated financial statements accompanying this report.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the
Years Ended December 31, 2025 and 2024
Income (Loss) from
Equity Method Investment – Lab Services MSO
For the year ended December 31, 2025, we had income
from our investment in Lab Services MSO of $392,677, which consisted of our share of Lab Services MSO’s net income of $503,833 and
amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $111,156. We sold our ownership of 40% of
Lab Services MSO on February 26, 2025.
For the year ended December
31, 2024, we had loss from our investment in Lab Services MSO of $846,588, which consists of our share of Lab Services MSO’s net
income of $79,923, and amortization of identifiable intangible assets acquired from Lab Services MSO acquisition of $666,932, and impairment
of goodwill acquired from Lab Services MSO acquisition of $259,579, which was primarily attributable to Lab Services MSO’s lower
revenues and net incomes than anticipated and the decline in our stock price and market capitalization.
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Other Operating Expenses
For
the years ended December 31, 2025 and 2024, other operating expenses consisted of the following:
Years Ended December 31,
Directors’ and officers’ liability insurance premium 139,816 212,898
Impairment of laboratory equipment - 111,033
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Loss from Operations
As a result of the foregoing,
for the year ended December 31, 2025, loss from operations amounted to $7,591,359, as compared to $4,841,250 for the year ended December
31, 2024, representing an increase of $2,750,109, or 56.8%.
Other (Expense)
Income
Other (expense) income mainly includes third party
and related party interest expense, debt modification charge, change in fair value of derivative liability, loss on extinguishment of
debt, and other miscellaneous income (expense).
Other expense, net, totaled $9,927,514 for the
year ended December 31, 2025, as compared to $2,198,354 for the year ended December 31, 2024, representing an increase of $7,729,160,
or 351.6%, which was primarily attributable to an increase in loss on extinguishment of debt of approximately $9,077,000 resulted from
the reduction in the conversion price of our June 2024 Convertible Note, offset by a decrease in third party interest expense of approximately
$161,000, mainly driven by the decrease in amortization of debt discount and debt issuance costs of approximately $155,000, a decrease
in related party interest expense of approximately $42,000, a decrease in debt modification charge of approximately $839,000, an increase
in gain from change in fair value of derivative liability of approximately $164,000, and a decrease in other expense of approximately
$142,000 mainly due to the gain from litigation settlement.
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Income Taxes
We did not
have any income taxes expense for the years ended December 31, 2025 and 2024 since we incurred losses in these periods.
Net Loss from Continuing
Operations
As a result of the factors described above, our
net loss from continuing operations was $17,518,873 for the year ended December 31, 2025, as compared to $7,039,604 for the year ended
December 31, 2024, representing an increase of $10,479,269, or 148.9%.
Net Loss from Discontinued
Operations
Our net loss from discontinued operations was
$742,103 for the year ended December 31, 2025, as compared to $863,790 for the year ended December 31, 2024, representing a decrease of
$121,687, or 14.1%.
Net Loss
As a result of the factors described above, our
net loss was $18,260,976 for the year ended December 31, 2025, as compared to $7,903,394 for the year ended December 31, 2024, representing
an increase of $10,357,582, or 131.1%.
Net Loss Attributable
to Avalon GloboCare Corp. Common Shareholders
The net loss attributable to our common shareholders
(after taking into effect $162,473 in deemed contribution) was $18,098,503, or $5.64 per share (basic and diluted), for the year ended
December 31, 2025, as compared to $7,903,394, or $8.44 per share (basic and diluted), for the year ended December 31, 2024, representing
an increase of $10,195,109, or 129.0%.
Foreign Currency
Translation Adjustment
Our reporting currency
is the U.S. dollar. The functional currency of our parent company, AHS, Avalon Lab, and Q&A Distribution is the U.S. dollar and